6.5 Elasticity of supply
The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.
Price Elasticity of supply = % change in Quantity supplied ÷ % change in Price
In Fig 6.9, when the price of a cup of coffee is $4.5, the quantity supplied is 4 cups an hour as shown by point A and when the price rises to $6.00 a cup, the quantity supplied rises to 10 cups every hour as indicated by point B.
Price Elasticity of supply between points A and B (using the midpoint formula) = {(10 – 4) ÷ ((10 + 4) ÷ 2) × 100} ÷ {(6 – 4) ÷ ((6 + 4) ÷ 2) × 100} = 85.7 ÷ 40 = 2.14
Price elasticity of supply is always positive because price and quantity, both change in the same direction, following the law of supply.
Attribution
“4.1 Calculating Elasticity” in Principles of Microeconomics by Dr. Emma Hutchinson, University of Victoria is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.
